House approves bill rolling back Dodd-Frank in boost for small banks

Members of Congress are working to ease some of the financial restrictions put in place under the Obama administration in the wake of the 2008 financial crisis. The House on Tuesday approved a measure that would roll back some of the provisions put in place under the 2010 Dodd-Frank banking law. The Senate approved the bill in March. It will now head to President Donald Trump’s desk. Dodd-Frank was enacted to protect investors from another financial crisis. Here’s what members of Congress are looking to alter:

‘Too big to fail’

As the law currently stands, banks with assets in excess of $50 billion are deemed as being potentially “too big to fail,” and are therefore subject to a host of rigorous testing and regulation. That includes annual stress tests. Some have argued the $50 billion threshold is too low and hits medium-sized financial institutions as well as community lenders, hindering their ability to both loan and grow. The new bill seeks to raise the “too big to fail” threshold to $250 billion, which means institutions such as American Express and Barclays could be exempt from the regulation. Federal Reserve Chair Jerome Powell said during congressional testimony in February that he did not believe any banks were still too big to fail.

Volcker Rule

The bill also aims to eliminate Volcker Rule requirements on banks with assets under $10 billion. The Volcker Rule prohibits banks from making risky investments with their own money. After its implementation, financial institutions were forced to overhaul their trading operations. Fed officials have said that banks, particularly those with smaller trading desks, spend too much time interpreting and trying to follow this rule.

Mortgage lending

Congress is also seeking to give small banks a reprieve from mortgage lending rules that require banks to disclose detailed information on whom they are lending to. Banks originating less than 500 loans each year would no longer have to report racial data, including the race and ethnicity of their borrowers. Smaller banks with less than $10 billion in assets would not be required to follow the underwriting standards set forth under Dodd-Frank, which aim to ensure institutions are not loaning to people who are likely to default.

Credit freezes

In the wake of a slew of massive hacks in recent years, notably the Equifax cyberattack that exposed the sensitive information of more than 147 million Americans, Congress is seeking to require the three major credit agencies – Equifax, TransUnion and Experian – to freeze and unfreeze consumers’ credit reports for free.

Oil falls as investors grow wary of OPEC commitment to supply deal

Oil fell on Wednesday, under pressure from a potential increase in OPEC crude output to cool the market’s recent rally and cover any shortfalls in supply from Iran and Venezuela. Brent crude futures were down 75 cents at $78.82 a barrel by 0940 GMT, while US crude <CLc1> fell 46 cents to $71.74 a barrel. Oil prices have gained nearly 20% so far this year, with Brent briefly rising above $80, driven primarily by coordinated supply cuts by the Organization of the Petroleum Exporting Countries and partners including Russia. The price has also been affected by rising geopolitical tensions that could dent global output just as demand is set to hit 100 million barrels per day in the final quarter of this year, according to the International Energy Agency. In addition, the United States plans to reimpose sanctions on major oil producer Iran, while an economic crisis has decimated Venezuela’s crude output. Based on the prospect of a shortfall in supply relative to demand, investors had driven their bets on a sustained rise in the price of oil to record highs earlier this year. But with so much uncertainty over how sanctions might affect Iranian supply, fund managers have cut their holdings of crude futures and options by more than 10% in the last seven weeks to the lowest level this year. “It does seem like any move above $80 attracts selling interest right now and that could potentially lead us to a period of consolidation, where I think $77.50 or even $75 might be in focus,” Saxo Bank senior manager Ole Hansen said. “We still have the unquantifiable impact of US sanctions against Iran.” OPEC may decide to raise oil output as soon as June due to worries over Iranian and Venezuelan supply and after Washington raised concerns the oil rally was going too far, OPEC and oil industry sources familiar with the discussions told Reuters. “Investors are mindful of upcoming talks between Russia and Saudi Arabia about whether they should look at a controlled relaxation of over-compliance with their output cut agreement,” ANZ said in a note. Rising supply in the United States, where shale production is forecast to hit a record high in June, has limited the upward move in prices. US crude and distillate stockpiles fell last week, while gasoline inventories increased unexpectedly, data from the American Petroleum Institute showed on Tuesday.

Black Knight – first look at April 2018 mortgage data

Black Knight, Inc. (NYSE:BKI) reports the following “first look” at April 2018 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market.

– Mortgage Delinquencies Buck Upward Seasonal Trend in April, Fall to Second Lowest Point in 12 Years

– Historically, mortgage delinquencies have risen 85% of the time in April; this month they declined 1.6% – about equal to the size of their average usual increase

– April’s improvement halted a seven-month trend of annual increases in the national delinquency rate

– Areas impacted by Hurricanes Harvey and Irma led April’s delinquency improvement, but slight declines were seen in non-affected areas as well

– Over 90,000 seriously delinquent mortgages (90 or more days past due) attributed to the 2017 hurricane season remain in affected areas of Texas, Florida and Georgia

– Foreclosure starts declined 5.4% overall and 30% from March in hurricane-affected areas

– The number of mortgages in active foreclosure hit its lowest point since August 2006

– Prepayment activity fell 4.3% in April from last month and was down slightly from last year’s level

Consumer groups ask US agency to probe Tesla ‘Autopilot’ ads

Two US consumer advocacy groups urged the Federal Trade Commission on Wednesday to investigate what they called Tesla Inc’s “deceptive and misleading” use of the name Autopilot for its assisted-driving technology. The Center for Auto Safety and Consumer Watchdog, both non-profit groups, sent a letter to the FTC saying that consumers could be misled into thinking, based on Tesla’s marketing and advertising, that Autopilot makes a Tesla vehicle self-driving. Autopilot, released in 2015, is an enhanced cruise-control system that partially automates steering and braking. Tesla states in its owner’s manual and in disclaimers that when the system is engaged, a driver must keep hands on the wheel at all times while using Autopilot. But in the letter, the groups said that a series of ads and press releases from Tesla as well as statements by the company’s chief executive, Elon Musk, “mislead and deceive customers into believing that Autopilot is safer and more capable than it is known to be.”

Mortgage applications decreased 2.6% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 18, 2018. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.6% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 3% compared with the previous week. The Refinance Index decreased 4% from the previous week to its lowest level since December 2000. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index decreased 3% compared with the previous week and was 3% higher than the same week one year ago. The refinance share of mortgage activity decreased to 35.7% of total applications from 35.9% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.8% of total applications. The FHA share of total applications remained unchanged at 10.3% from the week prior. The VA share of total applications decreased to 9.8% from 10.3% the week prior. The USDA share of total applications remained unchanged at 0.8% from the week prior.

Lowe’s 1Q earnings fall short

Lowe’s reported a 1Q profit of $1.19 per share, missing the estimate for $1.22. Revenue came in at of $17.4 billion. The estimate was for $17.45 billion. The company said prolonged unfavorable weather led to a delayed spring selling season. Sales for the first quarter increased 3% over the same quarter in 2017. Lowe’s reported a profit of $0.70 a share in the year ago quarter. On Tuesday, the company announced that current JCPenney CEO Marvin Ellison would be taking over at Lowe’s, replacing longtime CEO Robert Niblock.

Can Fannie and Freddie help fix the housing shortage?

The challenges facing the mortgage market are many: a significant shortage of housing, rising interest rates and first-time homebuyers who need specialized underwriting are just the start. But leaders from Fannie Mae and Freddie Mac assured attendees at the MBA Secondary Marketing Conference on Tuesday that the GSEs were ready to partner with them to meet these challenges. Desmond Smith, senior vice president and head of customer delivery at Fannie Mae, and Kevin Palmer, senior vice president of single family credit risk transfer at Freddie Mac, outlined their agencies’ efforts to make the entire mortgage process simpler and easier. And that’s a good thing, since the agencies facilitate the lion’s share — maybe even the elephant’s share — of the secondary mortgage market. Fannie Mae’s Day 1 Certainty program, which gives rep and warrant relief to lenders who follow specific guidelines, continues to grow. Smith said that $300 billion of the deliveries the agency receives now contain at least one component of Day 1 Certainty. More than 70 vendors and sellers have partnered with Fannie on the program, which allows it to offer lenders a wide choice of services. Likewise, Freddie Mac is looking to offer maximum flexibility to lenders. “We have been hearing customers talk around the broader theme of how can we make it faster, easier and more cost efficient to originate that loan? Making it cost efficient is more important today than ever before,” Palmer said.

The housing shortage that continues to plague the industry has no easy fixes. Smith said that half of the people employed in construction work left the industry after the housing crisis and up to 4 million homes have been diverted into rentals. In addition, the US is contending with an aging housing stock that will need renovation investment before being habitable. Fannie Mae has responded by making some major changes to its HomeStyle renovation product, making it easier to for lenders to sell those loans to Fannie Mae. It is also exploring how it can increase sales of manufactured homes and even modular homes. “At Fannie Mae, we’re going to take a leadership position to help solve [the housing shortage]. We want to get to the root cause and solutions,” Smith said. Fannie Mae’s biggest contribution could be the way it is trying to simplify its construction to perm program, which has been a complicated process that sees lenders holding onto the loan for six to nine months or longer. “if we can buy that product at the time of closing, I think a whole lot of builders could come into market,” Smith said. At the same time, Freddie Mac is addressing what it sees as one of the biggest challenges the market is facing: the lack of affordability, combined with a change in demographics that demands a different underwriting structure. Freddie Mac continues to update its Home Possible program, revising income limit requirements to focus on serving low to moderate-income borrowers. The new requirements take effect at the end of July. Freddie Mac also recently rolled out its Home One program, which lets first-time homebuyers pay as little as 3% down. “Right now the number of first-time homebuyers is at a 10-year high,” Palmer said. “Our Home One program is just one way we’re expanding credit responsibly in this area.”

Freddie Mac is under the same Duty to Serve requirement as Fannie Mae, and Palmer said his agency is looking at a single-close process for manufactured homes that could be a game-changer for that segment of the market. “Right now there are over 40 million households struggling with the high demand and low supply of affordable single family homes,” Palmer said. “Under these changing demographics we are studying how Freddie Mac can help.” Those changing demographics also include a whole new type of borrower who works in the gig economy and often has multiple jobs. “With our ‘borrower of the future’ campaign we are partnering with a lot of external firms studying this change in demographics, to understand and anticipate their needs,” Palmer said. “You’ve got a lot of borrowers today who choose to have a much more flexible lifestyle. We want to be able to underwrite them better.” Smith echoed that sentiment. “We have to think differently. The largest transportation company doesn’t own cars. The largest retailer doesn’t own brick and mortar stores,” Smith said. Fannie Mae is conducting a pilot to figure out how to enable loans that leverage income from Airbnb rentals. “Can we use this income? Is it stable enough to qualify to purchase a home or refi?” Palmer noted that the challenge with Airbnb income is not simply to figure out the origination, but also what happens in a foreclosure scenario or with servicing.

During the Q&A session following the panel, Fannie Mae said it is currently conducting a single-source validation program with two lenders and expects to add three more in the next quarter. The agency is working to make sure the data — which is submitted differently by different lenders — can truly be verified. Freddie Mac is conducting a pilot program on employment verification and income verification, testing out how best to instill confidence in the borrowers that this is done in safe and secure way. Both GSEs take a collaborative approach to deciding which lenders to use in pilot programs. Freddie Mac said it finds these opportunities by talking with lenders and Fannie Mae said it uses its co-development panels. Smith recommended going through relationship managers to make a connection on projects lenders are interested in. A particularly hot topic for the conference, MSR liquidity, also made its way into the Q&A session, when the GSEs were asked about their acknowledgement agreements. Palmer said Freddie Mac is seeking to be more transparent to lenders in what they are financing. “What’s important to Freddie is the health of the nonbank originators. Can they be healthy in normal times and in more volatile times?” Palmer said. Smith said Fannie Mae believes the best way to be more transparent is to make changes to its acknowledgement agreement, which it has done. Both GSE leaders also expressed a desire to rethink the entire condo financing process to make it less burdensome.